Breakingviews on Twitter
Search League Tables

Friday, 27 May 2016

RT @Google #IPO

Maybe Twitter should Google its IPO

Maybe Twitter should Google its initial public offering. Instead of a typical share sale, the internet search giant catered to individual investors with what’s known as a modified Dutch auction. Though flawed, the unconventional approach is worth consideration by Twitter and its boss Dick Costolo as anticipation builds for the $10 billion social network to go public.

Start with the premise that Twitter, because it has over 500 million users, will confront mass appeal for its shares beyond the standard demand from mutual and pension funds. In another similarity with Google and Facebook, traditional valuation metrics may be tough to apply. And even if some investors focus on fundamentals, Twitter risks unleashing a stock whose main attraction will be that many others want to buy it.

The process used by Google founders Larry Page and Sergey Brin successfully mitigated some of the hype Facebook couldn’t. The auction style asks investors to declare how much they’re willing to pay and for how many shares. The price steadily declines until it reaches a level where all the shares on offer would sell - at which point all interested buyers commit.

Google left itself latitude to cut the price further, which it ultimately did. The decision elicited much criticism but also eradicated the feared “winner’s curse” that instead would years later befall Facebook investors. The social network’s 2012 debut was marred by technological failures and in only a few months the shares had fallen by half. By contrast, Google stock popped by about 18 percent on its first day of trading, achieving the generally desired result of raising the targeted funds for the company and any selling owners while giving new shareholders a warm welcome.

Not everything was handled sensibly in Google’s IPO. For example, Twitter would be wise not to copy the ultra-short 15-day lockup period for share sales that Page and Brin allowed for some executives. Google also pushed back too hard against Wall Street.

Using an auction reduces the standard role of underwriters, but they’re still needed to liaise with investors. Over-aggressively slashing fees irked bankers unnecessarily and cost the company some important goodwill. Learning from the Google and Facebook market debuts would give Twitter a chance to master the popular tech IPO.   

Have your say

To have your say, you have to be signed in

Related images

Context News

Twitter posted a job listing on multiple sites including LinkedIn on July 17 for a “manager for financial reporting” who would in part be “responsible for preparation of … Form S-1 when we are ready to go public,” USA Today reported. The opening could not be found the following day.

The social networking site was valued at nearly $10 billion by one of its investors in May, according to a Bloomberg report. GSV Capital reported ownership of 1.9 million shares worth $35.2 million. At $18.50 a share, Twitter’s fully diluted 530 million shares would be worth $9.8 billion.
Earlier this year, Twitter hired Cynthia Gaylor from Morgan Stanley to run its corporate development team, adding a veteran investment banker with experience in acquisitions and initial public offerings.

(Launches in a new window)